Seeking Portfolio Advice

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Seeking Portfolio Advice

Postby tryingtoInvest » Fri Mar 15, 2013 3:57 pm

Hi Everyone,

First off I would like to thank everyone who contributes to this website - there is a wealth of knowledge here that is presented is a very friendly and welcoming manner.

Some back history: I am 28 years old, professional engineer, getting married in a year, and currently seeking to take control of my portofolio.
I began my investing "career" by reading stock investing books (like One Up on Wall Street) and getting nervous about the wealth of knowledge required to be successful with individual stocks holdings. Last month I stumbled upon this website and the simple/lazy/permanent portfolio approach to investing was exactly what I was looking for which motivated me to take control.

I currently have a 401k with my employer at Fidelity, a Roth IRA with Vanguard, a brokerage account with Vanguard (currently being transferred from optionsXpress), as well as a UGMA with Barclays (just learned about this one - it is also being transferred to Vanguard).

Generally I am looking to create a well balanced portfolio that I can set and forget - rebalance when needed and keep contributing to. I would like to figure out my portfolio before getting into my future wife's - that's going to be a whole other mission.

I put the breakdown of my portfolio down below, here are my questions:

1. In keeping with tax efficient stock placement - the placement graphics indicate that bonds should ideally go into tax deferred account first if good funds are available - my 401k has a PIMCO (PTTRX | exp 0.48%) fund available and I currently hold - is this considered a good option or should I use the Roth IRA at vanguard for bond holdings? This is an important fork in the road as I would like to use the Roth for high growth holdings.

2. Most of the investment advice that I have been reading about tends to focus on retirement - my goal is to set up the portfolio in a way that I can have funds available within my taxable account for future unknown expenses (house, children, travel, who knows). Any advice on how I can achieve this? Is a portion of bond holding in the taxable account recommended? Should I separate this portion of funds from the retirement portfolio and create a "sub-portfolio"? Of course I do not want to jeopardize my retirement savings; however I would like to take advantage of market returns to build funds for future expenses. I understand that this is potentially risky; however the expenses may be 5+ years in the future.

3. With my cash/brokerage holdings I can max out my 2013 Roth now - is that recommended over contributing through the year?

4. My current portfolio is in a transition period so general recommendations considering my available 401k funds and current holdings would be welcomed.


I really appreciate you reading this far and any advice, guidance, or critiques that can be offered.


Portfolio

Emergency funds: Yes
Debt: Car loan - $290/month 2.9% (2 years remaining)
Rent: $645 per month
Tax Filing Status: Single (for now)
Tax Rate: 15%
State of Residence: NJ
Age: 28
Desired Asset allocation: 70% stocks / 30% bonds
Desired International allocation: 30% of stocks

Current assets

Total funds available for investing: ~$35,000
401k: ~$20,000
Roth: ~$5,000
Brokerage: ~$5,000
Cash: ~$5,000

Short-term reserves 27.70%
Bonds 34.00%
Stocks 38.30%
Other 0.00%
Total 100%

Taxable (brokerage)
13.9% | in various stocks (planning to sell off for distribution into funds)
13.8% | money market (on hold for allocation with this rebalancing)

401k
20.10% | PIMCO Total Return Fund Institutional Cl | PTTRX
11.8% | Vanguard Inst Index Fund Inst | VINIX
2.9% | Vanguard REIT Index Fund | VGRSX
8.9% | Vanguard Mid-Cap Index | VMISX
5.9% | Vanguard Small-Cap Index | VSISX
8.8% | Vanguard Tot Intl Stock Ix | VTSGX

Roth IRA
13.9% | Vanguard Inter-Term Bond Index Inv | VBIIX


Current Annual Contributions
$7,000 in 401k (10%, employer matches 25% up to first 4%)
$3,500 IRA/Roth IRA (5% gross salary)

Available 401k funds
Stock Investments
Large Cap

FID CONTRAFUND K | FCNKX | 0.63%
TRP EQUITY INCOME | PRFDX | 0.68%
* VANGUARD INST INDEX | VINIX | 0.04%

Mid-Cap
JPM MIDCAP VALUE IS | FLMVX | 1.02%
PRU/J MID CAP GR Z | PEGZX | 0.76%
* VANG MID CAP IDX SIG | VMISX | 0.1%

Small Cap
GS SM CAP VALUE INST | GSSIX | 1.04%
MFS INTL NEW DISC R5 | MIDLX | 1.04%
TRP NEW HORIZONS | PRNHX | 0.81%
* VANG SM CAP IDX SIG | VSISX | 0.1%

International
ABDN EMERG MKTS INST | ABEMX | 1.1%
AF EUROPAC GROWTH R5 | RERFX | 0.55%
* VANG TOT INTL STK S | VTSGX | 0.16%

Specialty
* VANG REIT IDX SIG | VGRSX | 0.1%

Blended Investment
FID FREEDOM FUNDS (~0.6%)

Bond Investments
Stable Value

Managed Income Portfolio Class 1 | MIP CL 1 | 0.71%

Income
FED INST HIGH YLD IS | FIHBX | 0.6%
* PIM TOTAL RT INST | PTTRX | 0.46%

Short-Term Investments
FID RETIRE MMKT | FRTXX | 0.42%
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Re: Seeking Portfolio Advice

Postby Twins Fan » Fri Mar 15, 2013 5:52 pm

Welcome... You have some good choices available in your 401k and you've done well choosing the low cost index funds. All that Vanguard stuff and no Total Bond available? That's kind of suprising. The Pimco fund is a decent fund. It's a pretty low cost fund, but it's actively managed, has some junk bonds in there, is a HUGE dollar fund at this point, and it's unknown what would happen to it when Mr. Gross leaves. You will get good and bad reviews/opinions of it. Read up on it some and form your own opinion.

Your going to find that the Boglehead way of investing is mainly focused on retirement also. So, I hope you're not expecting something other than that in here. Stay the course, stick to the plan, and buy and hold are boring "long term" phrases that you will see over and over in here.

I think most are going to say you should be trying to max out your 401K and IRA before doing any taxable investing. Especially since you have lots of low cost Vanguard funds available to you from both.

Any kind of savings for house downpayments, future children, or things like that should probably be kept in something much safer than taxable investing. Which would most likely be US/foreign equities? Think a high yield savings account, CDs, or Ibonds.

You say you like the lazy portfolio, but I sense there's a wheeler and dealer in you trying to get out? :D
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Re: Seeking Portfolio Advice

Postby tryingtoInvest » Fri Mar 15, 2013 6:04 pm

You say you like the lazy portfolio, but I sense there's a wheeler and dealer in you trying to get out?


Haha yes you are correct - I allotted myself a small portion of funds (not included in my previous post) that I use for the speculator in me.

Thank you for the advice - I will definitely do some research into the Pimco fund and maybe try asking HR if they would consider adding a total bond fund.
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Re: Seeking Portfolio Advice

Postby tryingtoInvest » Thu Mar 21, 2013 8:34 am

Good morning Everyone,

Thank you again for your reply and advice Twins Fan.

I am going to sit down and do the rebalancing this weekend - I am wondering if anyone else has any other opinions, suggestions, or comments.
Particulary regarding putting all of my bond holdings into my 401k's Pimco Total Return fund. I did ask HR to consider an alternate bond fund, but for now Pimco is the best available in my 401k.

My plan is as follows:
-put 100% of my bond holdings into 401k's Pimco Total Return.
-Max out 2013 Roth with cash reserves
-Go 100% Vanguard Total Stock in the Roth
-30% of stock into 401k's Vanguard International
-Balance out remaining 401k with stock/REIT holdings


I also have an alternate plan if I can liquidate my UGMA account anytime soon (also may just put towards wedding):
-put 100% of my bond holdings into 401k's Pimco Total Return.
-Max out 2013 Roth with cash reserves
-Go 100% Vanguard Total Stock in the Roth
-30% of stock into taxable account with Vanguard International
-Balance out remaining 401k with stock/REIT holdings
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Re: Seeking Portfolio Advice

Postby tryingtoInvest » Fri Mar 22, 2013 2:15 pm

Just wanted to try bumping this up to see if anyone has any other thoughts.
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Re: Seeking Portfolio Advice

Postby sometimesinvestor » Fri Mar 22, 2013 9:49 pm

What interest rate is the stable value fund offereing?. If its over3% it would certainly be appropriate to consider for a portion of your funds
Given that New Jersey is not a low tax state you may want to consider i bonds for a portion of your emergency funds or as part of your taxable portfolio(check the wiki and/or trasury direct http://www.treasurydirect.gov/
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Re: Seeking Portfolio Advice

Postby tryingtoInvest » Sat Mar 23, 2013 7:58 am

Thank you for the reply - unfortunately it looks like the stable value is down around 1% with ER .71%.
I definitely would like to understand ibonds for emergency/mid term expenses - I will look into this once I figure the retirement side of my portfolio out.

I had another question if anyone has an opinion on:
It looks like I will be inheriting around $5,000 from a UGMA account which I would like to put towards retirement.
Howwever; the funds may not be available for ~3 weeks.
Should I:
A) rebalance my portfolio now given that it is currently no where near my target and then again in 3 weeks when the funds become available
or
B) wait for the funds to become available before rebalancing

Note that with my current cash on hand, I will be maxing out my 2013 Roth - so with the "extra" UGMA funds I am thinking to put into taxable international holdings.

Please let me know your thoughts.
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Re: Seeking Portfolio Advice

Postby fulltilt » Sat Mar 23, 2013 10:26 am

tryingtoInvest wrote:Just wanted to try bumping this up to see if anyone has any other thoughts.


I only have one very minor point. I see you have VINIX in your 401k, if you add VEXMX in your Roth (4 parts VINIX, 1 part VEXMX), then that gives you another way to obtain TSM. That might useful when it comes time to rebalance.

FT
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Re: Seeking Portfolio Advice

Postby ruralavalon » Sat Mar 23, 2013 6:33 pm

You have about the nicest 401k I recall evere seeing. I wouldn'tworry at all about using the PIMCO Total Return Fund Institutional Cl | PTTRX . I do think its easiest to keep the retirement portfolio separate from the shorter term investing at least to start.

tryingtoinvest wrote:Age: 28
Desired Asset allocation: 70% stocks / 30% bonds
Desired International allocation: 30% of stocks
Your desired asset allocationis very reasonable in my opinion.

The idea is to get broad diversification (to decrease your risk), with low expenses (to increase your net gain), using tax efficient fund placement (again to increasde your net gain). Wiki article link: Principles of Tax-Efficient Fund Placement .

In general it is better to avoid very small fund allocations, like 2 or 3%, since such a small fund allocation cannot materially affect overall portfolio performance in the long run.

Here is a portfolio idea for you to consider, in your desired asset allocation, with total funds available for investing ~$35,000 (all percentages rounded off):

Taxable Account (28%;~$10,000)
14%, Vanguard Total International Stock Index Fund Investor Shares (VGTSX), er = 0.22%
14%, Vanguard Total Stock Market Index Fund Investor Shares (VTSMX), er = 0.18%

401k (57%; ~$20,000)
28%, Vanguard Inst Index Fund Inst | VINIX, er = 0.04%
00%, Vanguard REIT Index Fund | VGRSX, er = o.1%, <= if you use make it at least 5%, reducing the % of Inst Index
06%, Vanguard Small-Cap Index | VSISX, er = 0.1%, <= with Inst Index in ~ 4.5:1 ratio approximates total market
07%, Vanguard Tot Intl Stock Ix | VTSGX, er = 0.16%
16%, PIMCO Total Return Fund Institutional Cl | PTTRX, er = 0.46%

Roth IRA (14%; ~$5,000)
14%, Vanguard Total Bond Market Index Fund Investor Shares (VBMFX), er = 0.22%

This gives you a simple 6 fund portfolio, which is very broadly diversified , low expense, and tax efficient. It should aslso be easy to manage and rebalance, with any necessary rebalancing done inside the 401k.

I hopethat this helps.
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link:Getting Started
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Re: Seeking Portfolio Advice

Postby tryingtoInvest » Sun Mar 24, 2013 9:27 am

fulltilt - thank you for your response - that is a good approach to add some flexibility.

ruralavalon - thank you very much for your detailed response as well - i actually did not appreciate the funds available in my 401k until I began reading about other people's options.
I just have a couple of questions for you so that I can understand your thought process for future decision making:

1. Why did you split the bond holdings between Roth (Total Bod) and 401k (Pimco) - is this so that all of my egg's are not in the Pimco basket?
2. You used Inst index (VINIX) in ratio with the small cap index (VSISX) to approximate total market - can you explain why the mid cap (VMISX) fund was not included as well?
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Re: Seeking Portfolio Advice

Postby ruralavalon » Sun Mar 24, 2013 9:52 am

tryingtoInvest wrote: 1. Why did you split the bond holdings between Roth (Total Bod) and 401k (Pimco) - is this so that all of my egg's are not in the Pimco basket?
2. You used Inst index (VINIX) in ratio with the small cap index (VSISX) to approximate total market - can you explain why the mid cap (VMISX) fund was not included as well?


1. Bond funds are not tax-efficient, and need to be in a tax protected account, Wiki article link: Principles of Tax-Efficient Fund Placement . Your IRA at 14% of the portfolio is not large enough to hold all of your 30% bond allocation, so the rest needs to go in the 401k. The PIMCO fund is a good fund, I would not be afraid to have the entire bond allocation in it. Also its good to have all asset types in your largest account, so that its easy to rebalance in the future.

2. If you also use mid-cap to try to approximate total market, you wind up with a tiny 02% holding in mid-cap. If you just use small-cap to try to approximate total market you get a simpler portfolio and still get a style box that nicely approximates total market, you get:
25/26/22
05/06/05
04/04/04

A total market style box would be
24/24/24
06/06/07
03/03/03
Wiki article link: Approximating Total Stock Market .
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link:Getting Started
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Re: Seeking Portfolio Advice

Postby ruralavalon » Sun Mar 24, 2013 10:27 am

TryingtoInvest wrote: . . . for future unknown expenses (house, children, travel, who knows). Any advice on how I can achieve this? Is a portion of bond holding in the taxable account recommended? Should I separate this portion of funds from the retirement portfolio and create a "sub-portfolio"? . . .
. . . . .
Short-term reserves 27.70%
Bonds 34.00%
Stocks 38.30%
Other 0.00%

As mentioned, I would suggest keeping this shorter term investing separate from your retirement portfolio. This would be taxable investing.

Generally, money that may be needed in 5 years or less should not be in the stock market, so keep that in mind if any of your shorter term goals fall in that time frame.

If you use stocks for any part of this, stay with very tax efficient funds like total market stock index funds.

For bonds, a short term bond index fund might work well even in a taxable account, since bond returns are so low for now and are expected to be low for the next few years. Also consider short term insured CDs. As already mentioned by others I-bonds could work well, but be aware of their restrictions: "I Bonds cannot be redeemed during the first year, and if you redeem them within the first five years after purchase, you lose the most recent three months' interest." Wiki article link: I Savings Bonds .
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link:Getting Started
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Re: Seeking Portfolio Advice

Postby tryingtoInvest » Sun Mar 24, 2013 7:17 pm

ruralavalon - thank you for your clarifications - I have a much better understanding of the process and how to plan a strategy now.

I just completed my rebalance as follows:

1) Elected to go 75% stock/25% bond - this allowed me to put all of my bond holdings into the 401k. I did a quick analysis and it looks like my future contributions will favor the bond holdings bringing it closer to 30% over time (disregarding market fluctuations).
2) Contributed the $5,000 cash reserves to Roth for 2013.
3) Upped 401k contributions from 10% to 20%.
4) Decided to hold on contributing the upcoming UGMA inheritance towards retirement - I may keep this in short term reserves.
5) Rebalanced into 5 funds as follows:

401k
25% | PIMCO Total Return Fund Institutional Cl | PTTRX
16% | Vanguard Inst Index Fund Inst | VINIX
5% | Vanguard Small-Cap Index | VSISX
22% | Vanguard Tot Intl Stock Ix | VTSGX

Roth IRA
32% | Vanguard Total Stock Market | VTSMX

So now my entire retirement savings are allocated between my 401k and Roth at a 75/25 split and the 401k is diversified enough to allow for easy rebalancing.
As my 401k increases I would like to include some REIT as well as bring the Total Market approximation within my 401k closer to target.
Next step will be short term reserves and the future wife's portfolio.

I would like to thank everyone who responded and offered their advice - this is a wonderful community. I would love to return the guidance once my knowledge and experience develops.
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